CH-12-14 Designing Compensation and Benefit Packages – Human Resource Management: Linking Strategy to Practice : Chapter Notes

This Document Contains Chapters 12 to 14 Chapter 12 Designing Compensation and Benefit Packages Chapter 12 Learning Objectives 1. Describe basic elements of a compensation package. 2. Explain different features of base pay and employee benefit plans. 3. Explain various types of individual incentives, including strengths and weaknesses of each form of incentive. 4. Explain various types of group and organizational incentives, including strengths and weaknesses of each form of incentive. 5. Create compensation packages that align mix of individual, group, and organizational incentives with HR strategy. Chapter 12 Outline 12.1 How Do Compensation Packages Align with Strategy? • Compensation practices help reduce labor costs, which helps organization produce and sell goods at lowest possible price.  Practices that best support this low-cost strategy may be different from practices that are best for a company pursuing another strategy.  Must carefully consider its strategic objectives when designing a package of wages and benefits. • At-Risk Compensation  At-risk pay is compensation that can vary from pay period to pay period.  Employee earns at-risk pay if performance objectives are met.  Relates to motivational theory. o Reinforcement theory and expectancy theory suggest motivation is higher when pay is at risk. o Most compensation packages include some at-risk and guaranteed rewards.  Differentiators seek to hire and retain high performers.  Succeed by encouraging employees to exceed minimum expectations.  Typically place high proportion of pay at risk.  Cost leaders prefer employees make consistent contributions.  Consistency is encouraged by rewarding employees who loyally complete basic tasks.  Relatively low percentage of at-risk pay is common. • Line of Sight  Another element of strategic compensation packages concerns employees’ perceptions of ability to influence important outcomes.  Motivation increases when rewarded for outcomes within their line of sight.  More distant for group projects.  Expectancy theory suggests people are motivated only when believe efforts results in higher performance.  Justice theory points out motivation is higher when people believe individuals with greater inputs receive better rewards.  Effective compensation packages incorporate principle of line of sight.  Line of sight does not relate consistently to basic HR strategies. • Common Elements of Compensation Packages  Compensation packages should be adapted to fit unique needs of organization.  Common compensation elements across organizations: o Base pay is compensation not at risk and may consist of hourly wage or annual salary.  Gives sense of security and provides minimum guaranteed reward for joining organization.  Not contingent upon performance. o Employee benefits are rewards other than monetary salary and wages.  Organizations are required by laws and tax regulations to provide similar benefits to all employees.  Represent long-term compensation that builds loyalty.  Valuable for organizations with internal labor orientation. o Individual incentive based on personal performance of employee.  Can easily be linked to performance behaviors and outcomes.  Have a clear line of sight which makes them powerful motivators.  Must be carefully structured to encourage personal effort without destroying group cooperation. o Group incentive based on collective performance of team or organization.  Can harm cooperative effort.  Must encourage individuals to contribute maximum effort.  Decide how much of overall compensation will be guaranteed and at risk. 12.2 What Are Common Approaches to Base Pay? • Base pay for time worked.  Base pay is simple to calculate.  Most organizations combine base pay with other incentives. • Two basic methods for allocating base pay:  Job-based analysis.  Each job is evaluated with a point system; higher level jobs worth more points.  Appear less biased and provide employees with higher compensation when tasks require more knowledge and skill.  Skill-based analysis:  Skill sets defined by number of tasks employee can perform.  Those able to perform more tasks paid higher base wage.  Provide employees incentives to learn new skills. • Regardless of which method, organizations must establish a base pay rate.  Lead-the-market strategies establish higher compensation level than lag-the-market.  Organizations that seek innovation and higher individual performance place a larger percentage of compensation at risk.  Base pay usually higher percentage of overall compensation when pursuing Bargain Laborer and Loyal Soldier HR strategies. 12.3 What Are Common Employee Benefit Plans? • Two broad categories: required by law and voluntarily provided to employees. • Benefits represent approximately 30 percent of organization’s labor costs.  Favorable tax rules explain most of trend toward increased employee benefits.  Providing good benefits helps organization attract and retain quality employees. • Legally Required Benefits  Designed to protect people from hardship associated with not being able to work and earn a living.  In most cases, must be given to all workers in specified amounts.  Social Security  Workers pay into a fund and then draw from fund when retire.  Upon retirement, participants receive monthly payment.  Original age of eligibility was 65; now eligible for partial benefits at age 62.  Spouses & dependent children receive benefits if worker dies before retirement.  Disability insurance created Medicare (provides health insurance to beneficiaries).  Unemployment Insurance  Created incentives to states to provide workers with unemployment insurance.  Presence of federal guidelines means state programs are highly similar.  To qualify o Employed for minimum amount of time (usually a year). o Discharged from job for reason outside his or her control. o Not available if quit voluntarily or if fired because of things such as theft or failure to follow organizational rules. o Must demonstrate actively seeking employment.  Benefits o Normally receive weekly sum equal to half amount paid weekly while employed. o Recipients must file frequent claims documenting any earnings or job offers. o Last for 26 weeks but can be extended when overall rate of unemployment is high enough to suggest it is particularly difficult to find a job.  Funding o With few exceptions in states where employees pay small portion, unemployment insurance is funded entirely by contributions from employers. o Organizations with frequent layoffs (vs. stable) assessed higher rate.  Worker’s Compensation  All states have worker’s compensation programs that provide workers with compensation when they suffer work-related injuries; is no-fault insurance. o Percentage of weekly wages is paid to employees during time when unable to work because of accident. o Medical expenses and rehabilitation costs paid to injured workers. o Refunds to permanently disabled, or to families of workers who die because of a work-related accident.  Amount organizations pay to obtain worker’s compensation insurance depends on nature of industry and accident history of employer. • Discretionary Benefits  Most organizations offer benefit package beyond legal requirement.  Offering more than what is legally required provides benefits as a tool for attracting and retaining employees.  Amount of benefits provided as a percentage of compensation must be same at top and bottom of pay scale.  Benefit plan that meets regulations necessary for tax exemption status is known as a qualified benefit plan.  Health Care Plans  Most large organizations, and many small employers, offer health care plans.  Provide access to medical services.  Majority of company executives believe good health care plan improves employee health and increases worker productivity. o Historically, provided basic insurance that covered expenses for major medical conditions. o Over time, plans evolved to provide coverage for major medical conditions and routine health care.  Health maintenance organizations (HMOs) o Prepaid health plan with a specific health care provider that supplies health services to clients for a fixed rate. o Approximately 30 percent of U.S. population is enrolled in some type of HMO. o Mostly, employer contracts with HMO to pay fixed amount per person.  Employees must receive care from approved providers only.  HMOs are sometimes accused of rationing services so people do not receive treatments needed.  Many medical providers refuse to participate in HMOs because they receive a lower rate of reimbursement for services.  Health savings accounts (HSAs) o Personal accounts people use to pay for health services. o Money placed into HSA not subject to taxes and used only to pay for approved medical services. o Similar to flexible spending accounts. o Money can be carried over and used in subsequent years. o Usually combined with high-deductible health insurance plans. o Downside:  Higher insurance/ medical costs for those enrolled in traditional insurance.  Difficult for people with severe health problems to obtain health care.  Supplemental Insurance  Life insurance o Most common supplement for about 50 percent of workers. o Pays benefits to families or other beneficiaries when insured individual dies.  Disability insurance o Provides benefits to individuals who have physical or mental disabilities that prevent them from being able to work. o Almost 40 percent of employers provide insurance that protects workers for short period of time. o Nearly 30 percent provide insurance that covers long-term disability. o Mostly, pays approximately 60 percent of person’s typical wages.  Retirement Savings  Legally required benefit of social security provides minimum level of savings for all employees.  Many organizations supplement required social security benefit with a discretionary retirement savings plan. o Defined benefit plan: guarantees receive certain level of income based on factors such as salary and number of years worked for organization. o Defined contribution plan  Organization pays monthly into retirement savings account for employee.  Monthly contribution during worker’s career is fixed by organization.  Amount employee receives upon retirement is not fixed – depends on how money is invested.  401(k): Personal savings accounts for tax-deferred contributions.  Young workers often make mistake of not investing if not required to do so.  Defined benefit and defined contribution plans result in different perceptions of attachment to organization. o Defined contribution plans are highly portable. o Defined benefit plans associated with particular employer and not portable. o Defined benefit programs best for Loyal Soldier and Committed Expert HR strategies.  Pay Without Work: Paid as if worked during a time even though not working.  Over 70 percent of employees receive paid holidays and vacations.  Sick leave: Receive pay when cannot work because of illlness.  Lifestyle Benefits  Younger workers interested in working for organizations that fit lifestyles.  Include doing enjoyable work and balancing work responsibilities with other aspects of life, such as family and leisure time. • Flexible Benefit Programs  Allow each employee to choose customized benefits from a menu of options.  Customize benefits to maximize value of benefits for each employee. 12.4 What Are Common Individual Incentives? • In addition to base pay, most organizations offer incentives to reward high performers.  Portion of compensation is at-risk and those rewards depend on performance.  Properly designed individual incentives conform to notion of line of sight by linking rewards to actions and outcomes employees believe can influence. • Piece-Rate Incentives: fixed amount for each piece of output produced.  Focuses employees’ attention and effort on rewarded actions so other important tasks might not get done.  Most often observed with Bargain Laborer or Loyal Solider HR strategies. • Commissions  Piece-rate compensation most often associated with sales.  Commission, or percentage of total amount received, for each sale.  Shift some risk associated with low sales to employees.  Overall level of compensation is usually higher with commissions than salary.  People paid commissions may think of themselves as free agents with little loyalty to organization. Turnover can be high if alternative sales jobs are available.  Desire to earn commissions drives sales representatives to focus on short-term results.  Those paid with commissions may be unwilling to perform activities that do not directly increase sales.  Straight commission system can present difficulties because income is uneven.  In most cases, sales personnel are compensated with a low base salary plus commissions.  Most appropriate for Free Agent and Committed Expert HR strategies. • Merit Pay Increases  Most annual raises contain merit pay increase, which represents increase in base salary or hourly rate linked to performance.  Reward employees for ongoing individual contributions.  Providing merit pay increases result in higher productivity.  Work best when clear and accurate methods for assessing performance.  Need adequate funding for merit pay increase to be motivational.  Represent very small proportion of total pay.  Most common with Committed Expert HR strategy. • Merit Bonuses  Given to employee in addition to normal wages.  Differs from merit increase in that merit pay increase becomes part of base pay for next year, while merit bonus does not. 12.5 What Are Common Group and Organizational Incentives? • Work is increasingly being structured around teams rather than individuals.  Providing individual incentives often destroys teamwork.  Encourage employees to develop sense of ownership in organization.  Include profit sharing and stock plans. • Team Bonuses and Incentives  Linked to collective performance of groups rather than to performance of individuals.  Work best when:  size of group being measured is relatively small.  collective performance can be accurately measured.  management support for program is high.  Goal-based team reward  Provides payment when team reaches specific goal.  Organization agrees to reward team if meets specific performance objective.  Discretionary team bonus  Provides payment when high performance is observed.  No goal set to achieve specific outcome.  Managers provide reward whenever think team has performed well.  Frequency and size of reward are at discretion of manager.  When award given to team, can be divided among individual team members. o Divide it equally among team members. o Use some form of individual evaluation and provide higher-performing members with a greater portion of reward.  Organizations can reward employees for contributions made to teams. • Gainsharing  Sharing financial gains among owners, managers, and regular employees is central issue of gainsharing.  Occurs when groups of workers receive portion of financial return from reducing costs and improving productivity.  Aligns interests of workers with interests of company owners.  Common in manufacturing organizations, where costs and productivity gains can be objectively measured.  Limit plan to those employees with direct influence on product.  After plan is developed, employees become involved in a participative effort to make production more efficient.  If process becomes more efficient, amount of money saved is split between organization and employees.  Not equally effective for all organizations.  Requires cooperation and trust between managers and employees.  Chances of success increase when employees are highly involved in developing and carrying out plan.  Most beneficial in organizations where employees expect long careers.  Best suited for Loyal Soldier HR strategies. • Profit Sharing  Incentive payments based on overall organizational profits.  Potential to align interests of employees with interests of owners.  Major problem is line of sight.  Another weakness is employees come to expect bonuses and are dissatisfied in years when no bonus is available.  Strong motivator when employees perceive their efforts influence overall profits.  For Free Agent HR strategy, payout should be frequent.  For Committed Expert and Loyal Soldier HR strategies, may make sense to delay payout as part of retirement package that builds long-term bond with employees. • Stock Plans  One way to align interests of employees and owners is to make employees owners.  Stock plans transfer corporate stock to individual employees.  Stock options represent right to buy company stock at given price on future date.  Employee stock ownership plans (ESOPs): organization contributes stock shares to a tax-exempt trust that holds and manages stock for employees.  Effectiveness in motivating individual employees is questionable; line of sight often far removed from organization’s stock price.  Best with HR strategies that encourage long-term employment.  Committed Expert and Loyal Soldier HR strategies tend to incorporate stock plans into compensation plans.  Organizations with Free Agent HR strategies can use stock plans to attract high performers, but in this case period of time between receiving stock award and owning stock should be minimized. 12.6 How Do Strategic Decisions Influence a Compensation Package? • First task is to determine organization’s overall competitive strategy. • Competitive strategy then drives broad HR strategy.  Number of compensation decisions made to align reward system with strategy.  Set pay level and establish pay structure.  Determine how much at-risk compensation to include.  Specific amounts must be allotted to base pay, benefits, individual incentives, and group incentives. • Optimal percentage of at-risk compensation depends on overall strategy.  Organizations with a competitive strategy of differentiation seek innovation and recognition of top performers.  Placing high percentage of compensation at risk is common with Free Agent or Committed Expert HR strategies.  Organizations with a cost-reduction strategy prefer to pay employees lower overall wages, which is at odds with need to pay employees more when they assume risk of receiving less compensation if performance is poor.  Organizations with Bargain Laborer and Loyal Soldier HR strategies are therefore likely to have less at-risk compensation. • HR strategy affects pay level decisions.  Meet-the-market pay level strategies most frequently adopted Bargain Laborer and Loyal Soldier HR strategies.  Differentiators rely on hiring and retaining highly talented employees.  Free Agent and Committed Expert HR strategies often closely aligned with lead-the-market pay strategies.  Bargain Laborer HR strategies tend to compensate employees mostly in form of base pay, usually minimum-wage compensation.  Loyal Soldier HR strategies offer base pay as high percentage of overall compensation.  Committed Expert HR strategy fits with higher levels of at-risk compensation.  At-risk pay is often highest in organizations with Free Agent HR strategies. Chapter 12 Teaching Notes The following presents suggestions designed to help you utilize the special features and cases found in Human Resource Management: Linking Strategy to Practice. Concept Checks Answers to each of the four sets of Concept Checks are presented at the appropriate points in the chapter outline. The pre- and post-quiz questions also address the Concept Checks. Tables and Figures The table and figures presented in the chapter help illustrate the concepts of the chapter. They should be brought to the attention of the students and, perhaps, included in the exams. A Manager’s Perspective, What do you think?, And A Manager’s Perspective Revisited The chapter starts with a short scenario where Towanda is on her way to meet a small group of sales representatives whom she supervises. She’s on a new task force that has been charged with examining different approaches to compensation and she’s considering their options. Five true/false questions related to this scenario and the chapter topics are noted on page 443 and answered on page 474. Discussion of the chapter could start by posing these questions and asking for the class to vote on which questions are true through a show of hands, thumbs-up/thumbs-down, clickers, or paper copies of the questions. To keep student interest, the methods for identifying true answers should be varied. The activity could be repeated near the end of the chapter discussion. At that time, students could be asked if they agree with the answers. The students also could be asked to identify what additional questions Towanda should ask. During the discussion of the chapter material, you could refer to the questions noting that a certain section or discussion point addresses one or more of the questions. You also may want to address the questions at the end of discussing the chapter. In this case, you may want to bring the students’ attention to these questions informing the students that they will be asked to answer the questions near the end of the chapter discussion. At that time, students (individually or in groups) could be asked to explain why the answers are true or false. Students also could add questions to the list and briefly explain why they think a new question should be asked. This could be done as a class or in smaller groups. If done in smaller groups, each group could be asked to briefly report on an aspect of their discussion. Of course, one or more of the questions or more detailed versions of the questions could be included in an exam. If included in an exam, students should be warned that these questions might be part of the exam. Building Strength through HR: IKEA This special feature (page 446) highlights several issues noted in this opening case regarding IKEA (refer to pages 444-5). IKEA manufactures and sells Scandinavian furniture at low prices. This case illustrates how IKEA has aligned compensation practices with their competitive business strategy. The inset box (refer to page 446) presents some of the compensation practices and benefits mentioned in the case but not all. Therefore, you could ask the students what other compensation practices and benefits appeared to contribute to IKEA’s success (e.g., stock options, work-life balance). They also could be asked to suggest what other compensation practices and benefits might be appropriate for a cost reduction strategy. This discussion could be supplemented by students familiar with IKEA. Supplemental information could be provided by a student responsible for updating the case and finding relevant information from the organization’s website or other sources. You should inform the students of any school policies that address contacting organizations. You could have the class or groups discuss the case, or briefly mention it in a mini-lecture to show relevance of the chapter topics. Additional ways to address the opening cases could include individual students or teams of students presenting the main points and how the case answers the opening question of that section. The opening cases also could be used as a topic for a more comprehensive assignment. How Do We Know? Does paying some employees more than others increase productivity? This inset box (on page 448) is briefly mentioned above the box. Jason Shaw, Nina Gupta, and John Delery investigated how organizational performance is affected by high and low individual- or group-based compensation. As described in the inset box, they found that the work context influenced whether an organization benefited from pay dispersion. For example, individual-based pay differences enhanced organizational performance but group-based pay differences resulted in more accidents and lowered productivity. The class could be encouraged to read the details in the inset box. During the lecture or class discussion of the chapter, the study, conclusions, and recommendations could be summarized. This could be accomplished through your lecture (asking for student input) or by assigning the box to an individual student. You or the student could lead a brief class discussion after presenting the facts. Regardless of who presents the information, the students could be asked the following questions: (1) Why were the results more positive when pay differences were based on individual performance than on group performance? (2) What might be some reasons why accidents increased and productivity decreased when pay was dependent upon group performance? (3) What compensation practices and benefits might reduce these negative outcomes when variable pay is based on group work? (4) The study found that individual-based pay differences worked best when the work tasks required little coordination with others. Why? (5) Would you want variable pay? If not, why not. If so, would you prefer it to be based on your individual efforts or team efforts? Why? (6) In addition to sales jobs, for what other types of jobs might variable pay work? Why? Other ways to address this information could be through a short written assignment or a more in-depth research paper on the topic. Building Strength Through HR: Canada’s Best Employers As noted above this inset box (refer to page 449), this box illustrates how some Canadian companies utilize unique compensation practices. Workopolis and Hewitt Associates studied the 50 best companies to work for in Canada. They concluded that these companies have outstanding compensation practices and focus on making their employees feel valued. You could briefly mention this inset as an example of compensation practices and benefits offered by some of the best firms to work for in Canada. You could ask the students to describe the benefits for each of the three organizations and speculate why the compensation and benefits create a motivational climate for their employees where they would feel valued. You also could ask which two or three of the noted compensation practices and benefits would most motivate the students and make them feel valued and why. Students could be asked what compensation practices and/or benefits they would prefer more (and why). Finally, you may wish to address that these three organizations are Canadian firms and ask if the compensation practices and benefits noted in the inset box also relate to U.S. firms. Why or why not? NOTE: Some of the organizations (e.g., BC Biomedical Laboratories, Edward Jones) also are listed as one of the 2008 50 best companies to work for in Canada. Edward Jones, for one, is also included as one of Fortune’s (2008) “The 100 Best Companies to Work for in America.” Building Strength Through HR: Burton Snowboards As noted just below the inset box (refer to page 460), lifestyle benefits are an important part of Burton Snowboards’ compensation practices. You could briefly mention this inset as an example of lifestyle benefits and have the students be responsible for reading the inset box. If you want to spend more time on this topic, you could ask the students the following questions: (1) Why might these benefits appeal to and motivate workers who know snowboarding? (2) Why is the company willing to risk anyone or everyone taking time off work to snowboard on any one day? How might that affect overall productivity? (3) What do you think about bringing a dog to work? What related issues might the company need to address (such as dogs must be housebroken, friendly to people and other dogs)? (4) What other lifestyle benefits might Burton Snowboards consider offering? Why? Technology in HR: Enterprise Incentive Management This inset box (refer to page 463) briefly addresses computer software (Enterprise Incentive Management; EIM) that helps organizations manage compensation systems. The brief information presented in this box could be referred to during a lecture. Students could be asked the following questions: (1) Explain what EIM is and how it is developed. (2) Can the software be customized to meet the needs of various organizations or is it off-the-shelf? (3) How does EIM help organizational decision makers? (4) Does it appear that EIM has long term potential? Why or why not? The topic in this box could be further researched by students. Building Strength Through HR: John Deere As noted above the inset box (refer to page 468), the changes John Deere made to their compensation system are described. You could briefly mention this inset as an example of how an organization’s compensation system may need to be changed so that it better supports the organization’s strategy. Students could be asked to discuss the following: (1) What was the major focus of the compensation system that was in effect prior to 1997? (2) What changes were made to the compensation system that was in effect prior to 1997? How did this change the way employees worked? (3) What other aspects of gainsharing most likely are included in their new compensation system? Why might these contribute to increasing productivity and decreasing costs at John Deere? (4) What additional compensation practices and benefits might reinforce the gainsharing compensation at John Deere? Why? (5) Would you like to work in a gainsharing compensation system? Why or why not? How Do We Know? Do stock plans really influence the actions of top executives? As noted above the inset box (found on page 471), Gerry Sanders investigated how stock ownership and options influenced 250 CEOs’ actions in regard to mergers and acquisition activities. The researcher concludes that stock options encourage risk taking but stock ownership encourages less risk taking. The information reported in the inset box could be part of a lecture or class discussion. Students could be asked to explain the findings in regard to high or low risk taking. They also could be asked to identify other ways in which compensation and benefits can be structured to align the interests of the top level managers to those of the owners. Students might be asked why this is important to the managers, owners, and the future success of the organization. KEY TERMS at-risk pay base pay base wage cafeteria benefits commission compensation package defined benefit plan defined contribution plan disability insurance discretionary team bonus employee benefits employee stock ownership plan (ESOP) flexible benefit program gainsharing goal-based team rewards group incentive health-care plan health maintenance organization (HMO) health savings account (HSA) individual incentive life insurance line of sight merit bonus merit pay increase pay without work piece-rate incentive profit sharing qualified benefit plan sick leave social security system standard rate stock options stock plans unemployment insurance vested worker’s compensation Chapter 13 Working Effectively with Labor Chapter 13 Learning Objectives 1. Explain how unions and organized labor fit with HR strategies. 2. Describe history of organized labor in U.S., and explain how current trends are affecting labor unions. 3. Explain steps involved in organizing labor union, and describe managerial actions that are appropriate responses to unionization efforts. 4. Describe collective bargaining process. 5. Explain employee grievance process. Chapter 13 Outline 13.1 How are Labor Relations Strategic? • Not all organizations can benefit from cooperative labor relations.  Unions are more prevalent in some industries.  Benefits of unions depend to some extent on competitive strategy.  Gain from partnering with unions when HR practices have overall objective of creating stable workforce where all employees are treated similarly. • Unions provide employment security and long-term employment.  Powerful labor union can make it difficult for organization to dismiss workers.  Encourage organizations to provide training and better develop specific skills.  Are more compatible with organizations seeking long-term relationships with workers. • Unions to secure fair wages and benefits for all workers. • Most prevalent, and potentially most beneficial, for Loyal Soldier HR strategy.  Labor costs tend to be higher for unionized organizations but benefits of stable workforce help maintain quality.  Cost-focused organizations can achieve higher productivity by working with unions to reduce costs and create more efficient processes to better satisfy customer needs. • Difficulties  Free Agent HR strategy has most difficulty with unions.  Unions can create problems for Committed Expert HR strategies as well.  Organizations with unions tend to invest fewer profits into business because higher percentage of profit goes to employees’ higher wages.  Tend to spend less on research and development, which can be particular problem when seeking to innovate and differentiate products and services.  Lack of focus on long-term employment relationships makes labor unions somewhat incompatible with Bargain Laborer HR strategies. 13.2 How Has Organized Labor Evolved Over Time? • Rise of labor unions in U.S. is relatively recent. • Influence of Government Regulations  Railway Labor Act (RLA) (1926): Regulated relationships between railroads and unions and still regulates labor relations in railroad and airline industries.  Wagner Act (1935): Gives employees the right to participate in labor unions.  Employees can strike, or collectively refuse to work, to protest unfair labor practices, or seek higher economic rewards.  Prohibits management from engaging in unfair labor practices.  Cannot punish employees who engage in union activities.  Prohibited from dominating or illegally assisting unions.  Prevents management from helping to create weak union it can easily coerce into complying with management requests.  Employers required to bargain with unions in good faith.  National Labor Relations Board (NLRB): Enforces Wagner Act.  Taft-Hartley Act (1947): Shifted power back toward management interests by creating list of unfair labor practices for unions.  Prohibits labor unions from coercing employees to join.  Requires unions, like management, to bargain in good faith.  Describes procedures for removing union once it is in existence.  Taft-Hartley Act makes several union practices illegal.  Secondary boycott: occurs when labor union pressures other businesses to stop purchasing goods and services from business with which union has dispute.  “Featherbedding:” occurs when union requires business organization to pay employees wages even though employees not performing any services.  Prohibits closed shop. • Closed shop hires only individuals who are members of particular union. • Union shop does not require union membership as condition of hiring but does require employees to join union once on job. • Agency shop does not require employees to join union but requires them to pay service fees to union. • Open shop does not require employees to have any relationship with union.  Provides states with authority to enact right-to-work laws – laws allowing open-shop arrangements.  Federal Mediation and Conciliation Service (FMCS): agency has mission of preventing or minimizing impact of labor disputes.  Landrum-Griffin Act (1959): Regulates internal workings of unions and protects union members from abuse by corrupt leaders.  Bill of rights for union members.  Requires unions to report on several aspects of inner workings. • Current Trends in Organized Labor  Declining Union Membership  Manufacturing has replaced workers with automated processes.  Manufacturing facilities moved to other countries where labor costs lower.  Jobs remaining in U.S. are those not traditionally unionized.  Businesses increasingly hostile toward unions and more sophisticated at fighting attempts to unionize.  Declines in union membership are not consistent across all jobs. Most noticeable difference in union representation is between public- and private-sector employees.  Unionized employees in private sector declined from 35 percent in 1950 to 8 percent in 2005.  Percentage of unionized employees in public sector grew over same period.  Unions in Public Sector  Public-sector union activity is regulated by laws of individual states.  Many states limit right of public-sector employees to engage in strikes.  Some states prohibit collective bargaining for public-sector employees.  Number of factors support organizing of public workers.  General desire for voice among public-sector employees.  Improving current work situation is important for public-sector employees, who often have specialized skills not easily transferred to other organizations.  Many public-sector organizations pursue Loyal Soldier HR strategies.  Public-sector unions face obstacles that caused decline of unions in private sector.  Increased pressure to control service costs is pressuring many governments to curtail wage growth.  Public sentiment seems to be shifting toward less favorable opinion of unions.  Many public services becoming privatized.  Union Responses to Current Trends  Declines in membership have led unions to rethink many strategies.  Focusing on organizing part-time and professional workers.  Made greater efforts to organize historically disadvantaged workers, such as employees who work in temporary jobs may last only single day.  Union responses to current trends suggest Committed Expert and Bargain Laborer HR strategies may face more union organization in future. • International Differences in Organized Labor  A key for understanding role of unions is to explore how unions in U.S. differ from unions in other countries.  Unionization around world increasingly relevant for U.S. organizations.  Union Membership around World  Overall percentages range from 78 percent in Sweden to 8 percent in France.  12 percent in U.S. is lower than percentages for many other countries.  Overall percentage organized into unions generally declining throughout world.  Prevalence of unions has increased in Finland, Belgium, and Sweden.  Differences among Countries  Labor unions in U.S. have overall goal of increasing economic well-being of workers.  Focus on “bread-and-butter” issues (e.g., wages, benefits, and job security).  System of unions is modeled after court system, with both unions and management striving to represent rights of constituents.  Although unions in U.S. often support specific political candidates, political activism is not primary purpose.  Unions in some countries similar to unions in U.S.  Unions differ in focus on economic interests. • Unions in some countries organized with primary purpose of increasing wealth of employees they represent. • Unions in other countries place only limited emphasis on advancing employees’ financial interests.  Unions vary across countries in focus on political activities. • Unions in many European nations closely aligned with political parties. • Main emphasis of affiliated unions is promoting social agenda advances broad interests of workers. • Increased wages and benefits not primary focus of many union activities.  Unions in some countries emphasize both economic and political perspectives.  Greater acceptance of unions in many foreign countries may affect U.S. as businesses become more global. • Effect of Labor Unions on Nonunion Workers  Only small percentage of U.S. workforce is organized into labor unions, but most employees benefit from existence of unions.  Evidence shows unionized workers have higher salaries than non-unionized workers performing similar jobs.  Union employees working for organizations acquired by non-union organizations lose as much as 8 percent of annual earnings.  Unionization can increase wages for non-unionized workers.  Threat of unionization appears to improve working conditions.  These organizations recognize dissatisfied employees more likely to join labor union, so they work to implement HR practices to meet employees’ needs.  Communicating sense of care and trust for employees is important part of avoiding union organization.  Satisfaction may be equally high in unionized and non-unionized firms.  Mere opportunity for employees to unionize, or to leave to join unionized firm where they perceive they will be treated better, appears to help ensure employees treated fairly, even if those employees are not themselves union members. 13.3 How do Workers Become Part of Union? • Union Organizing Campaigns  Wagner Act established procedures for organizing workers into labor unions, and NLRB oversees such efforts: Authorization Card Campaign, Representation Petition, Certification Election, and Union Certification. • Decertification Campaigns: Taft-Hartley Act provides guidelines for employees to end affiliation with union. • Factors Influencing Union Campaigns  Employers generally would prefer not to have election in first place.  Employees most likely to support unionizing when feel powerless, company policies don’t show respect for employees, and management is ineffective.  Union organization efforts more effective when union clearly seeks to meet needs of employees rather than pursuing national political agendas.  Delivering on promises and leaders seen as being in touch with interests of laborers is more likely to succeed in organizing campaign.  Emphasize dignity and fairness rather than simply better wages and benefits.  Use person-to-person contacting, whereby employees who support union personally share message with friends.  Sense of solidarity comes from joining people similar in race, gender, and religious identification.  Regardless of union organizing strategies, individual employees differ in willingness to support and join labor unions.  Workers with parents who are more supportive of unions are more likely to support unions themselves.  Employees who have had positive experiences with unions are also more likely to vote to participate in a union. 13.4 What Happens During Labor Negotiations and Collective Bargaining? • Once union is recognized, agree on contract that spells out terms of relationship between organization and workers. Collective bargaining: Agreeing on labor contract. • Bargaining Topics  Mandatory bargaining topics represent issues NLRB classifies as fundamental (i.e., wages, hours, working conditions).  Permissive bargaining topics are not related to wages, hours, and working conditions.  Illegal bargaining topics are topics that cannot be discussed in negotiation process. • Work Stoppages  Lockouts: Occur when employer shuts down operations during labor dispute.  Strikes: Occur when union members collectively refuse to perform jobs.  Can be most damaging to organization.  Boycott – encourage consumers or other companies not to purchase company’s goods or services.  A strike can impose hardships on workers as well as employers. • Bargaining Atmosphere  Under NLRB guidelines, management and union must negotiate to create new collective bargaining agreement each time previous agreement expires.  Effective labor relations require creation of positive bargaining atmosphere.  Degree of trust developed during previous negotiations.  Negotiators who believe labor-management relationship can be win-win association more cooperative.  Ability to clearly distinguish distributive and integrative issues.  Distributive issues – where rewards and benefits must be divided among parties.  Integrative issues – result in mutual gains, increasing overall level of rewards and benefits for everyone.  Adopt problem-solving techniques.  Leaders and mediators ensure mutual motivation, which exists when both sides see importance of arriving at cooperative resolution.  Create sense of equality so neither side allowed to dominate other.  Leaders and external consultants can provide social support to reduce negative emotions and enhance discussions. • Interest-Based Negotiation  Interest-based negotiation represents innovative strategy for collective bargaining.  Each side explains factors of most interest.  They work together to find solution that best satisfies interests of both parties.  Four steps to interest-based negotiation:  Step 1: Prep for Negotiations: Interest-based negotiations use data to identify key concerns.  Step 2: Open Negotiations: Each side presents opening statement listing its major interests, what issues are most important, and clarifying scope of problems.  Step 3: Negotiate Using Interest-Based Principles: Negotiators discuss interests behind issues, list potential solutions, and identify set of standards to evaluate quality of each solution.  Step 4: Communicate Bargaining Results. 13.5 What is Grievance Process? • Grievance: Dispute between employer and employee over terms of employment agreement. • Grievance Procedures  Generally follow multi-step process.  In general, steps move from informal discussions to formal mediation.  Normally begins when employee feels he or she has been treated unfairly and goes to supervisor with complaint.  In some cases, initial complaint is made in writing, but in many instances first step is simply verbal statement to inform supervisor of concern.  Majority of grievances resolved at first stage.  If not resolved at first step, employee moves to a step that involves more people.  Employee often obtains help from union steward (union representative who advocates for employees).  Many unions have grievance committee and national representatives who get involved if resolution is difficult.  Department or division managers listen to appeals and HR representatives often play supporting role.  Final step in most grievance procedures is arbitration (type of judicial process).  Management and union representatives act like attorneys to present facts and arguments supporting side of disagreement.  Arguments heard by arbitrator (neutral third party role similar to judge).  Arbitrator makes ruling, which is usually binding on both parties.  About 2 percent of grievances actually reach arbitration stage. • Determinants of Grievance Filing:  Characteristics of individual worker.  People who file have higher rates of absenteeism and more insurance claims.  Younger, male, educated workers working in skilled jobs more likely to file.  Rates higher when supervisors emphasize production over friendly relationships and when low perceived fairness of supervisors.  Unions initiate grievances to define actions associated with particular jobs. • Grievance Mediation  Many organizations have adopted mediation as step in grievance process.  When mediation is used, occurs just before arbitration.  Similar in some respects to interest-based negotiation.  In most organizations, mediation involves third party who helps parties work together to arrive at mutually beneficial resolution.  Process is more informal than arbitration. • Each side presents facts. • No witnesses or cross-examination. • Mediator does not make binding decision. • If do not resolve conflict with mediator’s help, issue goes to arbitration.  Evidence suggests mediation has long-term benefits.  Most organizations see as effective way to resolve disputes.  Conflict is generally decreased with mediation, and managers, union leaders, and employees learn effective methods of resolving future disagreements. Chapter 13 Teaching Notes The following presents suggestions designed to help you utilize the special features and cases found in Human Resource Management: Linking Strategy to Practice. Concept Checks Answers to each of the four sets of Concept Checks are presented at the appropriate points in the chapter outline. The pre- and post-quiz questions also address the Concept Checks. Tables and Figures The table and figures presented in the chapter help illustrate the concepts of the chapter. They should be brought to the attention of the students and, perhaps, included in the exams. A Manager’s Perspective, What do you think?, And A Manager’s Perspective Revisited The chapter starts with a short scenario where Neil is thinking about union-related issues (e.g., ongoing strike, picket line, producing during the strike). Five true/false questions related to this scenario and the chapter topics are noted on page 483 and answered on page 512. Discussion of the chapter could start by posing these questions and asking for the class to vote on which questions are true through a show of hands, thumbs-up/thumbs-down, clickers, or paper copies of the questions. To keep student interest, the methods for identifying true answers should be varied. The activity could be repeated near the end of the chapter discussion. At that time, students could be asked if they agree with the answers. The students also could be asked to identify what additional questions Neil should ask. During the discussion of the chapter material, you could refer to the questions noting that a certain section or discussion point addresses one or more of the questions. You may wish to address the questions near the end of your chapter discussion. In this case, you may want to bring the students’ attention to these questions informing the students that they will be asked to answer the questions near the end of the chapter discussion. At that time, students (individually or in groups) could be asked to explain why the answers are true or false. Students also could add questions to the list and briefly explain why they think a new question should be asked. This could be done as a class or in smaller groups. If done in smaller groups, each group could be asked to briefly report on an aspect of their discussion. Of course, one or more of the questions or more detailed versions of the questions could be included in an exam. If included in an exam, students should be warned that these questions might be part of the exam. Building Strength through HR: Kaiser Permanente This special feature (page 486) highlights several issues noted in this opening case regarding Kaiser Permanente (refer to pages 484-5). This case illustrates how an organization can have effective, more cooperative relations with their union that can benefit employees, a federation of unions (AFL-CIO), and the organization. The inset box (refer to page 486) presents most of the general practices and benefits mentioned in the case but not all. Therefore, you could ask the students how Kaiser and their alliance of unions (American Federation of Labor and Congress of Industrial Organizations; AFL-CIO) interact. For example, top Kaiser executives and union officials meet frequently. Interestingly, the cooperative agreement has resulted in decreased workplace injuries (by over 20 percent), increased employee satisfactions (by 15 percentage points), and cost savings estimated at over $100 million. This discussion could be supplemented by students who have worked for Kaiser Permanente and/or who are members or aware of the AFL/CIO. The Experiential Exercise (Investigating the Labor-Management Partnership; p. 518 of text) asks the students to access the relevant website to read about the Labor Management Partnership at Kaiser Permanente. The questions associated with the Experiential Exercise are noted at the bottom of this chapter in the Instructor’s Manual. You may want to assign those questions prior to starting the chapter. This way, you and the students could discuss the case and partnership in more detail. You could guide a class discussion of the main points or you may prefer to briefly mention the highlights of the case in a mini-lecture to show relevance of the chapter topics. Another way to address this case would be to have individual students or teams of students present the main points and how the case answers the opening question of that section. Building Strength Through HR: MidState Medical Center As noted on the page after the inset box, this inset box (refer to page 488) illustrates how MidState Medical Center works with union members to provide excellent health care. You could briefly mention this inset in a mini-lecture or you could ask the students to describe how MidState, their employees, and the union benefit from their cooperative relationships. Students could discuss whether this is possible at all organizations that have unionized workforces and why or why not. Students also could be asked their opinions of the fact that MidState “largely operates by bypassing the union and meeting the needs of employees” as noted in the inset box. For example, if management focuses on employee needs, is there still a need for a union? You also could ask the students what other HR practices might be necessary or desirable. How Do We Know? Can unions make life better for child-care workers? This inset box (on page 496) is briefly mentioned below the box. This gives a good reason to elaborate on the information presented in the box. Three researchers investigated whether unions can make things better or worse for employees. As described in the inset box, the findings of their study revealed that unions can improve working conditions and provide greater economic rewards for employees in the child-care industry. The class could be encouraged to read the details in the inset box or read more by accessing the 2002 article. During the lecture or class discussion of the chapter, the study, conclusions, and recommendations could be summarized. This could be accomplished through your lecture (asking for student input) or by assigning the box to an individual student. You or the student could lead a brief class discussion after presenting the facts. Regardless of who presents the information, the students could be asked the following questions: (1) Why might better wages and benefits be typical outcomes of union membership (versus those of non-unionized organizations)? (2) Are unions necessary for improvements in wages and benefits? Why or why not? (3) How might union membership benefit child-care providers who are better qualified and have more skills since they tended to receive higher pay whether or not they were union members? (4) What factors make the child-care industry a good candidate for unionization? Are there other industries and job categories that might be good candidates for unionization? Explain. (5) Might these results generalize to other industries and other countries (e.g., U.S.)? Other ways to address this information could be through a short written assignment or a more in-depth research paper on the topic. Technology in HR: Replacing laborers with computers As noted on the previous page, this inset box (found on page 505) addresses union reactions to and benefits of an organization adopting new technology that can displace workers. The brief information presented in this box could be referred to during a lecture. You could ask the students to discuss these questions: (1) Should unions attempt to stop productivity improvements through technology and other changes that may reduce the number of workers needed in a specific job? Why or why not? (2) In general, what should be a union’s role in regard to improvements through technology and worker rights? (3) In the near (and far) future, do you think technology will replace more jobs than it adds? Will resulting skill levels typically be a mixture of low and high skills as described in the inset box? Explain. (4) What HR-related issues are involved when some jobs and other skilled or unskilled jobs are reduced, abolished, and added? The topics in this box could provide topics to be researched by students. How Do We Know? Does cooperating with unions help organizations? This inset box (found on page 507) is introduced in the paragraph above the box. Stephen Deery and Roderick Iverson studied whether management and the union can cooperate without compromising the position of either party. The researchers concluded that cooperative relationships increased employee commitment and loyalty to the union and organization. This also resulted in increased productivity which included customer service and lower absenteeism. The information reported in the inset box could be part of a lecture or class discussion. Students could be asked to speculate what types of information management needs to share with the union in order to be seen as more cooperative. They also could discuss which practices a union might assess as being fair. Finally, you could refer back to information about Australian unions that was presented in the text chapter (refer to p. 497). The authors note that only 23 percent of Australian organizations are unionized and they’ve been on a consistent decline since 1970 (now decreased by 27 percent). You could ask the students how this information affects how one might interpret this study in regard to Australian organizations. KEY TERMS Agency shop Arbitration Authorization card campaign Bargaining unit Boycott Closed shop Collective bargaining Decertification election Distributive issues Featherbedding Grievance Illegal bargaining topics Integrative issues Labor relations Labor union Landrum-Griffin Act Lockout Mandatory bargaining topics Mediation National Labor Relations Board (NLRB) Open shop Permissive bargaining topics Railway Labor Act (RLA) Right-to-work laws Secondary boycott Strike Taft-Hartley Act Unfair labor practices Union shop Union steward Wagner Act Chapter 14 Aligning Strategy with Practice Chapter 14 Learning Objectives 1. Explain concepts of vertical and horizontal alignment. 2. Identify specific HR practices that fit within each of the basic HR strategies. 3. Understand how basic competitive and HR strategies can vary, what role human resources can play in strategy formulation, and why HRM is important for small organizations. 4. Describe how field of HRM is likely to change in upcoming years. Chapter 14 Outline 14.1 What Are Two Basic Forms of Strategic Alignment? • Each HR practice is in alignment when in proper place relative to other practices and strategic objectives.  Vertical alignment  Positioning of HRM strategy in relation to other organizational strategies.  Research supports value of vertical alignment.  Horizontal alignment concerns coordination of parts within organization.  In specific case of HRM, refers to fit of specific practices with other practices.  Research supports benefits of horizontal alighnment. 14.2 How Do HR Practices Align with One Another? • External/Cost: Alignment for Bargain Laborers focuses on creating efficiency with talent obtained from external labor markets.  HR practices focus on minimizing labor costs.  Most employees working in entry-level positions require few specialized skills.  Few workers feel strong organizational commitment.  Work Design  Work is simple so employees with little skill can learn quickly.  Work is structured according to mechanistic approach to job design.  Recruiting and Selection  Recruiting  Designed to identify large number of candidates. • High turnover creates a need for ongoing applications. • No need for specific skills allows organizations to cast a wide net. • Positive aspects of job highlighted to encourage applicants to accept positions.  Common recruiting methods include referrals, print advertising in newspapers, electronic advertising on commercial websites, and public employment agencies.  Selection  Constantly hire new employees. • Do not need to identify specific skills and abilities. • Employees will not have long career with organization – little need to assess organizational fit. • Mostly, hire dependable employees who are willing to follow instructions.  Common selection methods include cognitive ability testing, physical ability testing, integrity testing, drug testing, and application forms.  Retention  Frequent turnover of employees is common.  Emphasis on cost reduction often makes it difficult to retain high performers.  Good employees encouraged to stay as long as they will.  Given ongoing need to attract workers, low-performing employees usually allowed to stay employed as long as they meet minimum requirements.  Performance Management  Performance management within Bargain Labor HR Strategy focuses on ensuring employees perform above minimally acceptable level.  Assessments based on absolute standards do not compare employees with each other.  Little emphasis is placed on identifying high performers.  Training and Development  Teaching how to perform specific job duties efficiently is key focus of training.  Training • Focuses on learning how to do things. • Focuses on communicating importance of following company procedures. • Assessed in terms of costs associated with helping employees learn.  Costs minimized by: • Purchasing off-the-shelf training packages. • Reducing travel. • Using current employees as part-time trainers.  Long-term employee development is not common.  Compensation  Compensation levels tend to be relatively low.  Set wage rates at point necessary to attract workers.  Do not offer premium wages.  Compensation for each job depends largely on what individuals can earn in similar jobs at other organizations.  Often use uniform transactional compensation.  Minimizes pay differences among employees.  Acknowledges most employees do not have a strong organizational commitment.  Employees usually paid hourly wage for doing what asked to do.  Some employees receive piece-rate pay tied to individual productivity.  Labor Relations  Major objective of most labor unions is ensuring job security.  Unions are somewhat at odds with Bargain Laborer HR strategy.  Employees less likely to organize or join unions. • Internal/Cost: Alignment for Loyal Soldiers  Focuses on internal talent development and efficiency.  Develop strong culture of commitment.  Encourage long careers within organization.  Work is facilitated when employees do as asked with a focus on reducing costs.  Work Design  Adopt standardization as a core principle of work design.  Work is structured according to mechanistic approach for job design.  Focus is on determining efficient production processes and encouraging employees to follow prescribed methods of doing things.  Recruiting and Selection  Recruiting  Strategies designed to identify current employees who can be promoted and transferred.  Applicants receive a realistic recruiting message.  Internal methods include job posting and electronic advertising within company.  Common external methods for entry level employees include employee referrals, electronic advertising, public employment agencies, and campus recruiting.  Selection  External efforts focus on finding people with personality characteristics that fit with organizational values.  Common methods include cognitive ability testing, personality testing, physical ability testing, drug testing, application forms, and interviewing.  Retention  Employee retention is major part of Loyal Soldier HR strategy.  Organization continually monitors employee satisfaction and implements programs to improve working conditions.  Organization communicates support and care about employees’ well-being.  Workers embedded by relationships with others in organization.  Poor performers often transferred to a position that better fits abilities and interests.  Performance Management  Used to motivate employees.  Parity-based assessments compare performance against absolute standards and allow everyone to be classified as high performer.  Training and Development  Training is done on job and focuses on specific procedures for completing tasks.  Ongoing training is important, since employees will rotate through a number of jobs.  Compensation  Focuses on providing rewards for long-term contributions.  Workers with organization for more time earn higher wages.  Uniform relational compensation provides similar rewards to all employees.  Good benefits help strengthen bond between employees and organization.  Mostly base pay and little is placed at risk.  Organization may use group incentives to encourage cooperation among workers and may offer profit-sharing and stock plans to link employee behavior with long-term organizational interests.  Designed to reward team players who commit to long careers with organization.  Labor Relations  Frequently see unions in organizations pursuing a Loyal Soldier HR strategy.  Focus is on ensuring long-term employment and equality.  Sense of solidarity that comes from union adds to culture of cooperation.  Sense of stability that usually develops can help organization achieve efficiency through long-term relationships with employees. • Internal/Differentiation: Alignment for Committed Experts  Focuses on creating distinctive products and services with talent developed internally.  Workers encouraged to pursue long-term careers within organization.  Employees expected to become experts in their chosen fields.  Workers use expertise to innovate and create unique outputs.  Work Design  Emphasize high worker autonomy and reciprocal processing.  Give employees broad responsibilities.  Expect employees to continually coordinate efforts with others.  Skilled employees have freedom to adjust work to fit changing demands.  Workers coordinate efforts and adapt to changing technological innovations and shifting market conditions.  Work is designed around motivational approach to job design.  Focus is on designing work in ways that provide employees with opportunities to innovate and develop ongoing relationships with others.  Recruiting and Selection  Recruiting  Focuses first on internal candidates. • Targeted skills approach, combined with internal sourcing. • Communicates realistic message.  Identify people with specific skills committed to advancing in organization.  Common recruiting sources • Internal – job postings and electronic advertising in company website. • External – employee referrals and campus recruiting.  Selection • Identify individuals with potential to develop specific expertise over time.  Employees should have ability and interest necessary to develop specific skills during careers.  Employee characteristics fit culture of organization. • Common methods to assess potential and fit include cognitive ability testing, personality testing, assessment centers, biodata, and interviewing.  Retention  Retain high performers and dismiss low performers.  Focus on creating a desirable workplace with satisfied employees.  Discipline and dismissal should be rare.  Performance Management  Success depends on having employees who exceed minimum expectations.  Approach strengthens culture of innovation and creativity.  Training and Development  Teach specific skills employees need for current jobs.  Continuous improvement of skills produces superior goods and services.  Assessment and feedback programs help employees see where improvement is needed.  Provide guidance and support for employees advancing through organizational ranks.  Help employees develop superior skills which enable them to perform well in current and future positions.  Compensation  Because they seek to hire and retain best workers, overall level of pay is usually higher than at other organizations.  Variable relational compensation provides extra incentives for high performance.  Long-term incentives such as profit sharing and stock options align monetary interests of employees with long-term interests of organization.  Merit pay provides higher pay for more years of contribution and team-based incentives encourage cooperation among employees.  Good benefits strengthen ties between organization and employees.  Overall compensation is designed to provide high incentives to top performers who pursue long-term careers with organization.  Labor Relations  Long-term emphasis of strategy is compatible with labor unions.  Unions often incompatible with focus on innovation.  Giving favorable treatment to high performers can be at odds with union interests. • External/Differentiation: Alignment for Free Agents  Aimed at obtaining input of experts to create distinct products and services.  Organizations acknowledge that these employees develop careers within occupations rather than specific organizations.  Employees are more loyal to particular profession rather than to organization.  Strong bonds between organization and employees not encouraged.  Workers frequently replaced by new employees who have up-to-date skills.  Work Design  Focuses on creating a work environment where skilled employees have freedom and opportunity to innovate and create unique outputs.  Autonomy is high and tasks are complex.  Workers apply expertise.  Focus is on giving highly skilled workers freedom to accomplish tasks they are uniquely qualified to perform.  Recruiting and Selection  Recruiting  Designed to locate and gain attention of skilled workers. • Focuses on locating specific talent outside organization. • Only a limited number of people possess desired skills.  Common sources include employee referrals, print advertising in specialized journals, targeted Internet sites, and private employment agencies.  Selection  Identify individuals who have desired skills and abilities.  Assess potential employees’ past achievements.  Fit with demands of a particular job is more important than fit with organization.  Methods include work sample testing, résumés, and interviewing.  Retention  Removing low-performing employees is important.  Poor performance must be dealt with quickly and employees dismissed.  Performance Management  Focuses on separating high and low performers.  Create culture of competition and excellence by comparing employees.  Forced distributions.  Assess outcomes rather than behavior.  Training and Development  Not critical for strategy.  Long-term development opportunities help firm recruit highly skilled workers.  Highly skilled employees more likely to accept positions with organizations when they perceive they will have opportunity to continue growing skills.  Skill development that can be transferred to other organizations is important.  Compensation  Compensation rates relatively high.  Must pay higher wages than other organizations.  Variable transactional compensation provides higher wages to top performers.  Lack of emphasis on long-term contribution means newly hired employees often paid highest wages.  In most cases, a large proportion of compensation is put at risk.  Commission and bonuses frequently part of pay package.  Overall compensation designed to provide immediate reward for high contribution.  Labor Relations  Emphasis on short-term employment relationships, along with higher compensation for top performers, generally incompatible with unions.  Most employees see themselves as professional workers rather than union members.  Unions are rare. 14.3 What Are Some Other HR Issues? • Variations of Basic Strategies  Turnaround strategy  Variation of organization’s competitive approach.  Company performing badly attempts to change radically and return to profitability.  New approaches to production implemented which usually makes it compatible with external labor orientation.  Free Agent HR strategy is often part of competitive strategy emphasizing need to quickly improve low organizational performance.  Global expansion strategy  Variation of competitive strategy.  Focuses on growing organization’s presence in foreign countries.  HRM can play important role in helping organization achieve objective. • Working in foreign countries may require skills and abilities different from those needed by employees working in home country. • Need workers who are quite different from current employees.  Free Agent HR strategy is most closely aligned with global expansion competitive strategy.  Growth strategy  A variation of competitive strategy.  A company seeks to expand into new markets.  Companies with employees and HR practices that do not fit parent company’s model are less likely to be acquired.  There are other variations on competitive strategies.  Fortunately, core HR concepts can be adapted to help organization achieve whatever strategy it is pursuing.  Key is to begin by thinking about what types of worker inputs needed to carry out strategy successfully. • HR as Input to Competitive Strategy  Rational strategic approach: organizations begin with a competitive strategy and match HR strategy to competitive strategy.  Evolutionary strategic approach: organization’s HR capabilities can be seen as part of strategy formulation process. • Role of HR in Small Businesses  Small businesses often lack elaborate HR systems and strategies.  Those with better strategic plans for HRM shown to have higher rate of survival.  Small firms that place greater emphasis on recruiting, selection, performance appraisals, training, and compensation grow at a faster rate than other firms.  Effective HRM helps small organizations innovate.  Little is known about specific HR practices most effective for small businesses.  Adapt commonly accepted practices to fit unique demands of small organizations.  In future, field of HRM will benefit from additional research and investigation into unique circumstances of small businesses. 14.4 What Might the Future of HR Look Like? • Field of HRM is continually changing.  Emphasis no longer to assure compliance with legal requirements.  Trend is a strategic model linking management of people to competitive objectives. • Outlook for Organizations  Growing Importance of HR  Important demographic shift is taking place in U.S.  Organizations will soon face a shortage of workers.  Will be increasingly difficult to find people to fill jobs.  Especially true for positions that require specialized skills.  As talented workers become more scarce, benefits of good HRM will continue to grow.  Greater Prominence of Strategic Issues  Alignment between HR and competitive strategies shown to improve organizational effectiveness.  Emphasis on strategic aspects of HR is expected to expand in future.  Increased Emphasis on Measuring Value of HR  HR professionals have placed increased emphasis on identifying quantifiable measures to show value of good HRM.  Trend toward quantifying value of HR is expected to continue.  Future efforts likely to focus on measuring how much intangible value is created by HR system and how intangible value can be increased. • Outlook for HR Professionals  People who work in HRM can benefit from managing careers.  Five key challenges HR professionals likely to face in careers.  Lack of power.  Walking tightrope between managers and employees.  Dealing with people who are skeptical about benefits of good HR.  Vulnerable to cutbacks and downsizing.  Possibility of being overwhelmed by amount of work required.  If you seek career in HRM, you need to understand and be ready to meet similar challenges. Chapter 14 Teaching Notes The following presents suggestions designed to help you utilize the special features and cases found in Human Resource Management: Linking Strategy to Practice. Concept Checks Answers to each of the four sets of Concept Checks are presented at the appropriate points in the chapter outline. The pre- and post-quiz questions also address the Concept Checks. Tables and Figures The table and figures presented in the chapter help illustrate the concepts of the chapter. They should be brought to the attention of the students and, perhaps, included in the exams. A Manager’s Perspective, What do you think?, And A Manager’s Perspective Revisited The chapter starts with a short scenario where Keiko is thinking about compensation at her company. She’s wondering if she should recommend higher pay for high-performing employees. However, her earlier experience with implementing a change in HR practices that did not fit with the other HR practices was unsuccessful. Three of four employees hired under the new system quit within a few months. Five true/false questions related to this scenario and the chapter topics are noted on page 523 and answered on page 546. Discussion of the chapter could start by posing these questions and asking for the class to vote on which questions are true through a show of hands, thumbs-up/thumbs-down, clickers, or paper copies of the questions. To keep student interest, the methods for identifying true answers should be varied. The activity could be repeated near the end of the chapter discussion. At that time, students could be asked if they agree with the answers. The students also could be asked to identify what additional questions Keiko should ask. During the discussion of the chapter material, you could refer to the questions noting that a certain section or discussion point addresses one or more of the questions. Alternatively, you may wish to address the questions at the end of discussing the chapter. You may want to bring the students’ attention to these questions, informing the students that they will be asked to answer the questions near the end of the chapter discussion. At that time, students (individually or in groups) could be asked to explain why the answers are true or false. Students also could add questions to the list and briefly explain why they think a new question should be asked. This could be done as a class or in smaller groups. If done in smaller groups, each group could be asked to briefly report on an aspect of their discussion. Of course, one or more of the questions or more detailed versions of the questions could be included in an exam. If included in an exam, students should be warned that these questions might be part of the exam. Building Strength through HR: Walt Disney World This special feature (page 526) highlights several issues noted in this opening case regarding Walt Disney World (refer to pages 524-7). This capstone case describes how a system of compatible human resource management practices can help build an organization’s competitive strength. The inset box (refer to page 526) presents some of the HR practices mentioned in the case but not all. Therefore, you could ask the students what other HR practices appeared to contribute to Walt Disney World’s success (e.g., Hawaiian shirts, soliciting employee input, flexible work design, promotion from within). This discussion could be supplemented by students familiar with Walt Disney World. Their website (http://corporate.disney.go.com/) adds very little additional information. Nevertheless, you might want to review it because the students probably will have done so before class discussion. You could assign a student to provide supplemental and update information. This person also could tell the class about relevant information from the organization’s website or other sources. You should inform the students of any school policies that address contacting organizations. You may wish to address this capstone case through guided class or group discussion or briefly mention it in a mini-lecture to show relevance of the chapter and text topics. Additional ways to address the opening cases could include individual students or teams of students presenting the main points and how the case answers the opening question of that section. How Do We Know? What happens when organizations send mixed signals about the value of employees? This inset box (on page 529) is briefly mentioned on the previous page (p. 528). Christopher Zatzick and Roderick Iverson investigated the relationship between layoffs and HR practices. As described in the inset box, they found that productivity decreases when an organization implements an HR practice that does not fit with their other HR practices. Specifically, they concluded that layoffs can negate the competitive advantage that a firm has achieved through high commitment HR practices. The class could be encouraged to read the details in the inset box. During the lecture or class discussion of the chapter, the study, conclusions, and recommendations could be summarized. This could be accomplished through your lecture (asking for student input) or by assigning the box to an individual student. You or the student could lead a brief class discussion after presenting the facts. Regardless of who presents the information, the students could be asked to discuss the following: (1) Is the reverse of these findings possible where layoffs in an organization with poorly aligned, non-supportive, or non-existent HR practices actually result in an increase in productivity? Why or why not? (2) How could an organization with high commitment HR policies lessen the negative affects of layoffs (or other mismatched HR practices)? What actions and communications would be more consistent with these HR practices? (3) This study involved 3,000 Canadian workplaces. Would you expect the same results in organizations in the U.S. or other countries? Other ways to address this information could be through a short written assignment or a more in-depth research paper on the topic. Building Strength Through HR: Wegmans Food Market, Inc. This inset box (found on page 532) illustrates how Wegmans Food Markets uses effective HR practices to compete with larger chains such as Albertsons and Wal-Mart. You could briefly mention this inset as an example of how the strategic partner role is implemented or you could ask the students to describe what HR practices are mentioned in the box. You also could ask the students how their HR practices work together (fit) to support the statement “employees first, customers second.” Finally, the students could discuss how customers being second might affect customer service and Wegmans’ customers’ perceptions of the Market. The students could address how implementing this statement might result in high levels of customer satisfaction. How Do We Know? Does working in a foreign country require more skill? The study described in this inset box (found on page 541) is mentioned prior to the box. Three researchers investigated whether employees working in a different country have higher skill and ability requirements than needed in their home country. Among other things, the researchers found that international assignments called for greater social skills, more perceptual and reasoning skills, and higher motivation to achieve and adjust. They conclude that global organizations need to carefully select and train employees that have the potential to succeed in an international assignment. The information reported in the inset box could be part of a lecture or class discussion. Students could be asked to discuss the following: (1) How can organizations determine if an employee has the potential to succeed in an international assignment? (2) What kind of training might be important for everyone to succeed in an international assignment? What might be important for different specific countries (e.g., Mexico, Japan, India)? (3) In general, should organizations select and train employees so that they have the skills to fit in with the culture of an organization in their home country so that the employees will succeed? (4) Would you want to work in a country that is very different from your home country? Why or why not? What additional training or other HR factors might help you succeed as an employee or manager in and visitor to another country? Building Strength Through HR: American Standard As noted above the inset box (refer to page 543), the CEO of American Standard wanted proof that HR was adding value. The results of a survey indicated that high scores on HR practices were associated with positive business outcomes. You could briefly mention this inset as an example of the importance of measuring how HR practices and department are adding value. You also could mention some of the results of the survey. If you want to spend more time on this important topic, you could ask the students to discuss the following questions: (1) What tangible benefits were tied to the HR practices? (2) What might be some intangible benefits of HR? How might they be measured? (3) What other outcomes might an organization want to measure to assess HR’s contributions? (4) How will the organization know if the benefit is due to one or more HR practices (and which ones)? KEY TERMS alignment evolutionary strategic approach expert power global expansion strategy growth strategy horizontal alignment intangible assets positional power rational strategic approach turnaround strategy vertical alignment Instructor Manual for Human Resource Management: Linking Strategy to Practice Greg L. Stewart, Kenneth G. Brown 9780471717515